Home Loan

Know all types of charges & benefits on a home loan


The most common way to buy a home is by getting a home loan. Before getting a home loan, one needs to know a few basic things. What are the types of home loans, the benefits, the methods, and the charges on home loans? Know more about charges on home loans.

With low interest rates, long loan terms, and higher borrowing limits, it is finally possible to buy your dream home. Most people who take out a loan are aware of the interest rates and payments, but a smart borrower takes the time to learn about all the different types of charges on home loans, big and small. This is important, especially when doing your research so that you choose the right lender to borrow from and don’t find any hidden costs after you’ve paid the processing fee for a home loan. Now, we’ll look at some of the most common charges for a home loan that you should know about.

Types of Charges on Home Loans

Housing Loan Processing Fee for Charges on Home Loan

The processing fee for a home loan is one of the most important and obvious costs of a home loan. It could also be called an “administrative fee” by some lending institutions. It’s usually a percentage of the total loan amount that you pay upfront to cover the administrative work that goes into getting and checking your loan paperwork. It’s important to remember that many banks and non-banking financial companies (NBFC) don’t give back the processing fee for home loans. This means that the charges on a home loan will not be returned, even if the loan is turned down. So, keep this in mind when you’re looking for the right lender.

Administrative charges for charges on home loan

Many financial institutions include all administrative costs in the processing fee for a home loan, but others may keep the two things separate. In this case, administrative charges may be added, which usually include the cost of checking out the property for which the loan is being considered. This could mean going to the site, looking at the structure, checking the law, etc. Most of the time, this kind of work is given to agencies that specialise in it. So, this could be thought of as a pass-through cost. Some lenders may also charge a home loan to log in or fill out an application. This may not be refundable or may be taken out of the total costs when a home loan is approved. When choosing a company to give you a home loan, it’s a good idea to know how processing and administrative processing fees for home loans are calculated.

Payment Charges for Charges on Home Loan

Usually, three types of charges can be put in the Payment Charges category.

●      Prepayment Charges: This kind of charge on a home loan is also called a foreclosure charge or a pre-closure charge. It applies if you pay off your remaining home loan in full before the end of the agreed-upon term. There may be times when you think you have enough money to pay off the whole loan before the end of the original term and save on interest. But you should know exactly what the prepayment charges are and then decide if it’s in your best interest to do so.

●      Late Payment Charges: As the name suggests, late payment charges on home loans happen when your monthly instalment payment (EMI) is late for any reason. To keep people from not making payments on time, lending institutions charge penalties that range from 2% to 3% per month until the EMIs are paid off and the payment schedule is back in sync.

●      Fees for partial prepayment: Most loans with a variable interest rate don’t take this into account, but you need to know if your loan plan does. If you decide to pay off only part of your loan balance, you may have to pay partial prepayment charges. This will happen every time you make a partial payment, which can add up to a lot of extra money.

Costs of Conversion for Charges on Home Loan

It could be called a switching charge on a home loan by some lenders. When switching from one rate scheme to another, you must pay these fees on a home loan. Most of the time, this means switching from a fixed-rate interest plan to a floating-rate plan or vice versa. Sometimes, this conversion can also change the overall length of the loan.

What is the difference between a fixed rate and a floating interest rate?

As a cost of borrowing, the lender adds an interest rate to the home loan principal amount. Home loans usually come with two types of interest rates: a fixed rate and a floating rate. Read on to find out more about these two interest rates.

●      Fixed interest rate: As the name suggests, the interest rate on this kind of home loan doesn’t change during the time it takes to pay it back. Before the loan is approved, the lender and the borrower agree on a fixed interest rate. Borrowers can choose a fixed interest rate to avoid the risks of floating rates, in which the rate changes based on the benchmark rate.

●      Floating Interest Rate: Home loans with a floating interest rate give you more flexibility when it comes to the interest part. The interest rate is based on several things, such as an internal or external benchmark, which lets it go up or down depending on market conditions.

Benefits of a modification charge for a home loan

●      The first and most important benefit of a mod charge for a home loan is that a person gets a tax break on the interest he or she pays. This is especially helpful for people who are in high tax brackets. Getting a mod charge for a home loan can be a good idea because the interest on a mod charge for a home loan can be used as a tax deduction when you file your income tax return.

●      Another benefit of mod charges for home loans is that their interest rates are lower than those of other loans, such as personal loans, car loans, home loans, and so on. This makes monthly interest payments easier for the borrower.

●      Capital appreciation is another big benefit of a mod charge for a home loan. Over the past few decades, property prices have gone up much more than the amount of interest that has to be paid on a home loan. So, if a person takes out a home loan for $100,000 at a 10% interest rate to buy a house and the house’s value goes up to $400,000 in 10 years, the 10% interest rate won’t be a bad deal for the borrower because capital appreciation will cover the interest costs.

Summing up about Charges on Home Loan

The goal is to convey that you can get your dream house with the help of a home loan. Getting a home loan costs money, as you can see. Listed above are some of them, but you may need to consider others and compare the charges on home loans before choosing the best lender to help you get your dream home.

If you’re looking for additional information on loans, mortgages, MSME financing, personal loans, business loans, and even a handy loan calculator, check out the many resources provided by Piramal Finance.